Can India reclaim its status as the fastest-growing economy?

Earlier this month, Raghuram Rajan quipped that India's V-shaped economic recovery is no particular cause for celebration. If you create a bad enough downturn, the recovery will always be V-shaped. So, if the path going forward was always supposed to be V-shaped, what was all that speculation over the last 18 months about, whether it would be U, V, W, K or even L-shaped? 

The fact is that with an 8.4% growth in Q2 2021-22, India is among a select group of nations that have bettered pre-pandemic levels. The idea that the economy will automatically spring back to life as long as the downturn is bad enough is questionable. For starters, it's not historically accurate. The Great Depression began in 1929, economic output declining in the US by around 30%. 

It did not recover to 1929 levels for 10 years. So, while everything comes to an end at some point, the timeline matters. The nominal GDP of Russia in 2019 was roughly 20% below 2011 levels, and that of Brazil was nearly 30% below. If there is some kind of natural law about V-shaped recoveries, why are two of India's Brics peers still struggling? The latest World Economic Outlook report by the International Monetary Fund (IMF) projects that all advanced economies will reach pre-pandemic levels only by end-2022. Emerging and developing economies will have to wait. 

This makes India a clear frontrunner. For critics, the solution has been to shift goalposts. Some have pointed out that even the 8.4% expansion represents an annual growth of just 0.2% over the last two years. But that is just the opportunity cost of the pandemic. It is not just India, but the whole world that has lost two years. Another way to shift goalposts has been to give all the credit for India's high GDP numbers to the 'low base effect'. 

Before 2019, India had been the world's fastest-growing economy for four years. Does that mean that the economic slowdown of 2019 was entirely due to 'high base effect'? The least the critics can do is be consistent. In fact, if there was a statistical illusion in growth numbers, it would be more appropriate to say that India has been a victim, rather than a beneficiary. 

For 2020, the contraction in India's GDP was 7.3% - it was 10% in Britain, 8% in France, 9% in Italy and 11% in Spain. But India was just unlucky that the hit from the first wave was concentrated in April, May and June 2020. This resulted in a shocking 24% contraction in Q1 2020-21, with India stuck for a while with the misleading label of worst performer among major economies. When the pandemic struck in 2020, there were fundamentally two options. 

One was to go the US way, and to keep the economy open. India chose a full lockdown, along the lines of most European countries. Either way, there were no precedents and nobody knew what the impact would be, and at what cost. Now, the latest IMF projections say that the Indian economy is set to expand by 9.5% in 2021-22. Some organisations have projected even higher numbers. This means that India will reclaim its status as the fastest-growing economy. 

Agricultural GDP is up by 4.5% in Q2, over and above the 3.5% last year. This means that there is no base effect for anyone to 'hide behind'. Then, there is consumption. For two successive months now, GST collections have been over ₹1.3 lakh crore. 

This year, the Confederation of All India Traders (CAIT) estimated sales of ₹1.25 lakh crore during Diwali, more than double the sales of ₹60,000 crore in 2019. This is certainly not pent-up demand. The last two years have been difficult for India, as for the whole world. But let us celebrate the fact that it pulled things together and has come through. Let's give credit where it is due. ",